Should you consider setting up an EU based subsidiary to circumvent some of the restrictions and red tape currently being experienced by some UK companies?

Stephen Jones of Management Today recently talked to Steen Rosenfalck, senior partner at European business lawyers ebl miller rosenfalck regarding options for UK companies trading in the EU. An extract of Stephen’s interview is shown here. 

Is there a specific law that has changed post-Brexit about setting up a company within the EU? 

There are no general rules applicable to setting up a branch or subsidiary within the EU; it is very much dependent on individual countries so you should always get local advice. The main change is that the EU’s rules on free movement have stopped. So, if you are a UK national, you would now need a visa to work in the EU.  

What employment laws would staff be subject to? 

Employees who mainly carry out their duties in an EU country will be subject to local employment law. This would apply in most cases, but also even if you have agreed that English law should govern the employee-employer relationship. If you are thinking about hiring UK nationals in an EU country, you should also check whether they are entitled to work. Applying for a work permit can be a cumbersome process. 

What common mistakes should companies avoid? 

Many companies underestimate the time it takes to get operational. We also see that some overseas businesses do not comply with local rules in terms of procedure for termination of the employment, payroll and related employment taxes, which can be costly. 

What about tax, how does that work? 

Taxes are individual to each country. Typically, your subsidiary will be taxed on the profits generated in this company. If you are looking to distribute dividends to the parent company, this may be subject to local withholding taxes. Naturally, you should also examine what the rate of local corporation tax is and the taxes relating to employees. 

What would be your advice, as a commercial lawyer and export advocate? 

Shortlist a few countries and examine in more depth how you do business there. The first port of call would probably be the Department for International Trade and their local trade representatives in your chosen country. You should also contact the inward investment agency/commercial section of your potential destination country. Start in good time and plan ahead. The main consideration should be to identify where your main trading partners or the majority of your customers are, so that you get closer to them. This also signals that you are serious about your intentions in the local marketplace. Likewise, I would look at logistics such as warehousing, fulfilment centres and local transport links and consider the availability of qualified staff with appropriate language capabilities.  

A last point is banking. In my experience it is getting increasingly difficult to open a bank account without any local connections. So do speak to your UK bank and ask whether it has a corresponding bank locally. Reproduced by kind permission of Management Today from an article written by Stephen Jones on the 9th February 2021

  • on March 4, 2021